Bankruptcy is the last thing that anybody wants to go through
. It tears your credit apart, cause's public humiliation, and it generally means you have to start over financially. If there was any possible way of avoiding bankruptcy many people would take it in a heartbeat. The good news is that there are many ways of avoiding bankruptcy it just depends on what stage of financial ruin you are in.
The most important thing you can do if you are facing any type of financial crisis is to start a budget. A budget is an organized process of determining where your money is going. To start this budget, list your financial spending patterns and obligations. You begin to track exactly where your money is going in an organized way so that you can see the consistency in your spending habits. Once you have control over your financial spending habits you can than begin to save or pay off your debt. If you are in an extremely dire financial situation begin to use that extra discretionary income for paying off debts.
The second tip is you paying down your debts. Start a budget and begin to pay your debts down starting with the smallest debt first. If you have two debts that you owe the same amount of money, than go off of which one has the highest interest rate. It does not matter what the interest rates are on your different debts, the smallest must be your first priority in terms of paying it off.
Conventional wisdom might at first glance be, that you should pay down the debt with the highest interest rate first, but if you pay down the smallest debt first you can then use that old minimum payment and apply it to your next debt, this is what Dave Ramsey calls the "Debt Snowball." You get compounding payments which helps you build momentum and pay off the rest of your debts. This strategy gives you the confidence that you need to be successful against such a daunting task.
Einstein said "The definition of insanity is doing the same thing over and over again expecting a different result." If you go back to the old patterns of spending and managing your money you will end up right back where you started. Getting out of a financial coma takes a long time but if you set goals and establish good habits you too can become debt free.